The dividend puzzle of economic theory asks why firms pay substantial dividends, given the classical tax rate preference for capital gains and deferral of capital gains taxation until realization. A new dividend puzzle arises at the level of practice in the wake of The Jobs and Growth Tax Relief Reconciliation Act of 2003 (the JGTRRA), which aligns tax rates on shareholder capital gains and dividend income at a maximum 15 percent even as it leaves in place the capital gains deferral. The new tax regime puts a difficult question to corporate boards: Whether, assuming payout, dividends hold out relative advantages over stock repurchases as the mode of payment....

The Article concludes that the shift to repurchases should not be read as a governance success story. Since repurchases held out tax benefits for most shareholders prior to the JGTRRA, there was no reason for outside monitors to ask hard questions about flexibility and adverse selection or to inquire further about the motivational effects of stock option valuation. With rate parity, the governance system needs to start the questioning process. The bargain repurchase possibility must be weighed against the adverse selection possibility, with the balance depending on the state of the market. Taxation remains a consideration: Repurchases and capital gains still hold out deferral value for long term, taxpaying shareholders. Finally, special dividends hold out advantages of transparency with the possible spillover of improved executive compensation policy. More generally, the JGTRRA poses a cost-benefit puzzle to be solved firm-by-firm, case-by-case. Unfortunately, the corporate governance system still rubber stamps management payout decisions, and so probably will fail to confront the questions. Governance reform is needed to assure that the payout decision is uncoupled from perverse incentives stemming from stock option compensation and reformulated in light of rate parity. It follows that payout should join management compensation in the emerging regime of governance by independent director committee.

Congress has enacted various tax breaks for members of the U.S. Armed Forces, including section 112 which excludes from income military pay for soldiers serving in combat zones like Iraq. The IRS has a very helpful web site and publication (Publication 3: Armed Forces' Tax Guide) explaining these tax benefits. Yet a recent GAO Report, Active Duty Military Compensation and Its Tax Treatment (GAO-04-721R), reports that the section 112 income exclusion has adverse tax consequences because of its interaction with other tax benefits, and that the adverse consequences get worse the longer a solder is stationed in a combat zone:

The complex interactions between the combat zone exclusion and certain tax credits (principally the Earned Income Tax Credit and the Additional Child Tax Credit) appear to be creating unintended consequences. Specifically, some low-income-earning service members who serve in a combat zone are worse off for tax purposes, while some higher-income-earning members are better off because they become eligible for a tax credit that is normally targeted to low-income workers.

Our analysis suggests that some of the roughly 430,000 members serving in a combat zone in 2003—between 5,000 and 10,000 members in one-earner households—suffered a net loss of tax benefits.... [T]he number of members losing tax benefits could be larger in 2004 depending on the how many service members are in a combat zone and how long they are there.

There is a lot of tax scholarship questioning the long-term effectiveness of state and local tax incentives to attract and keep business. (For some notable examples, see here, here, and here). Recent news reports out of Denver also question the practice. (Thanks to reader Ben Cunningham for the tip.)

I have very fond memories of sitting around the dining room table at my mother's house in Atlanta, Georgia, and enjoying Shabbat dinner. My older brother had recently become a physician, much to the delight of my father, who was also a doctor. The two of them would eagerly discuss everything from the development of new medical techniques to the business of their profession. It was in these discussions that I had my first introduction to the applications of socioeconomic theory to tax law. I remember my brother saying that he was going to spend money on something he did not need so that he could take a deduction. Economically, he would have been better off keeping his money and paying his taxes, but his reason for making his decision was that he "did not want the government to have the money."

Clearly, my brother's behavior could not have been predicted merely by assessing what was in his best economic interest. Instead, his actions reflected his own beliefs and expectations regarding the nature of the federal tax system. This, in many respects, is a classic example of why it is important to incorporate socioeconomics into the teaching of federal income taxation. Students need to understand that the study of tax is not a study of pure economics, but instead involves many factors. Understanding those factors can better help them to read and apply the Internal Revenue Code (Code) and the Treasury regulations interpreting it. Accordingly, this Article gives examples for using socioeconomic theory to teach taxation.

I saw The Day After Tomorrowwith my 13-year old son. It is one of those movies that is so cheesy that, if you are in the right mood, can be a lot of fun. My favorite line was when Dennis Quaid's son and others are trying to survive the coming ice age in the New York City Public Library. They need to burn books in the fireplace to generate heat and start quarreling over which books to torch. One character wants to preserve Nietzsche. Another wants to preserve the Gutenberg Bible. But all agree that the tax law books are a good beginning for the bonfire!

Darryll Jones, Associate Dean and Associate Professor of Law at Pittsburgh, begins his web page with the following quote:

Neophytes, to whatever field of endeavor, invariably seek or receive advice from those who have come before. As a new attorney in the Army--an environment of waning machismo, fortunately--I was the surprised and fortunate recipient of this advice: 'To be a good attorney, one must become a Renaissance man.' It struck me years later what the advisor meant. One must stimulate and nurture a broad range of intellectual understanding; law and life are so much more than the application of rule to fact. The law is poetry and science, intuition and objectivity, and only men and women of the Renaissance mind can appreciate, practice and profess its artistic and scientific nuances. Indeed, legal education is the ultimate arts and science curriculum. I might add, in closing, that the study of taxation is the ultimate liberal arts and science course in that most exciting of arts and sciences curricula.

Professor Jones has proven himself to be a true tax Renaissance man in the past year, as he has pioneered two important projects that will have profound effects on the tax community for years to come.

With his colleagues Anthony Infanti and James Flannery, he started the Pittsburgh Tax Review, which recently published its inaugural issue. Tax Profs who have long bemoaned the dearth of specialized tax law reviews should embrace this new outlet for our work. The first issue is quite strong, with these major pieces:

• Richard Kovach,A Seldom Considered Aspect of Tax Fairness and Simplification: The Need for a Coherent Policy Perspective on the Many and Varied Dollar Limitations Contained in the Internal Revenue Code

• Eric Lustig, Who We Are: An Empirical Study of the Tax Professoriate

If first issue is any indication, the Pittsburgh Tax Review is well on its way to accomplishing its mission:

The Mission of the Pittsburgh Tax Review is to provide a forum for the discussion and debate of current issues in the field of tax law. The Tax Review seeks top-rate scholarship from professors, practitioners, judges and other interested persons whose work contributes to the development, understanding and critical analysis of tax law. The Tax Review publishes notes, comments, reviews, essays, and articles concerned with Federal Income Tax, Federal Estate and Gift Tax, Corporate and Partnership Tax, International Tax, and related areas. By providing a forum in which these issues are presented, the Tax Review seeks to develop a greater understanding and appreciation of tax law.

The Pittsburgh Tax Review thus joins the Tax Law Review, Florida Tax Review, Virginia Tax Review, Tax Lawyer, and Houston Business & Tax Review as law review outlets for Tax Prof scholarship. (Editor's shameless plug: we are delighted that the Pittsburgh Tax Review has agreed to join these other tax law reviews in providing abstracts of forthcoming articles to be published in the Social Science Research Network's Tax Law & Policy e-journal.)

Professor Jones also published an important new casebook, The Tax Law of Charities and Other Exempt Organizations (West, 2003), with Steven Willis (Florida), David Brennen (Mercer) & Beverly Moran (Vanderbilt). The book is one of only three in this very important and growing area, and their novel multi-media approach is sure to attract professors and students. Here is a description of the book:

This law school text on charities and other exempt organizations uses a modular approach that allows instructors to tailor the presentation to their own style. Each chapter incorporates concise summaries of relevant law, cases, legislative materials, administrative rulings, questions, and planning activities. Part I explores the exempt purpose requirement, the exclusivity and commerciality doctrines and the procedural/organizational requirements for charities. Subjects include restrictions on charitable organizations, private foundations, non-charitable organizations, unrelated business income, modifications to
UBTI, controlled subsidiaries, unrelated debt financed income, and the taxation of member dues. It also reviews the charitable contribution deduction, foreign charities, and cross-border giving.

Each Saturday, TaxProf Blog shines the spotlight on one of the 700+ tax professors in America's law schools. We hope to help bring the many individual stories of scholarly achievements, teaching innovations, public service, and career moves within the tax professorate to the attention of the broader tax community. Please email me suggestions for future Tax Prof Profiles. For prior Tax Prof Profiles, see here.

Today marks the 1-year anniversary of the signing of the Jobs and Growth Tax Relief Act of 2003. In a press release, Treasury Secretary Snow crows that the bill "unleashed the enormous potential of our free-market economy and the results are a great victory for hardworking Americans."

The traditional 1-year anniversary gift is paper -- so perhaps 600 billion pieces of paper would be appropriate to represent the increase in the accumulated federal debt since the passage of the 2003 Act (from other parts of Secretary Snow's Treasury Department web site):
• $6.6 trillion in May 2003
• $7.2 trillion in May 2004

Americans United for Separation of Church and State has urged the IRS to investigate a Colorado Bishop's Pastoral Letter stating that "any Catholics who vote for candidates who stand for abortion, illicit stem cell research or euthanasia suffer the same fateful consequences [as the candidates who support these issues]." According to the Bishop, such people "place themselves outside full communion with the Church and so jeopardize their salvation." The group alleges that the Bishop's letter is designed to endorse President Bush and other Republican candidates and thus crossed crossed the line into unlawful partisan politicking, jeopardizing the diocese's tax exemption. For prior TaxProf Blog coverage, see here and here.

This paper presents new evidence on how corporate payout policy responds to the differential between the tax burden on dividend income and that on accruing capital gains. It describes the construction of weighted average marginal tax rate series for the period since 1929, and it suggests that the enactment of the Job Growth of Taxpayer Relief Reconciliation Act of 2003 should raise the after-tax value of dividends relative to capital gains by more than five percentage points. The impact of this change on payout depends on the elasticity of dividend payments with respect to the after-tax value of dividend income relative to capital gains. Time series estimates suggest an elasticity of more than three, and imply that the recent tax reform could ultimately increase dividends by almost twenty percent.

Brian Leiter reports today that Tax Prof Leandra Lederman (George Mason) has been offered the chair in tax law at Indiana-Bloomington, where she will visit next academic year before deciding on whether to make the move. For a list of over 30 Tax Prof moves for 2004-05, see here.

Recent and proposed fiscal policies—the tax cuts, proposals to make them permanent, and the medicare prescription drug bill—will hurt economic prospects for most of today's children and all future generations. The programs will leave economic growth largely unchanged, but will redistribute resources from future to current generations and, within each generation, from low- and middle-income families toward an affluent minority. These effects exacerbate the impact of underlying federal budget trends and processes that will place significant, imminent pressure on funding for children's programs. An expanded program of investments in children is both feasible and desirable.

The Treasury Department and IRS issued guidance today to clarify when film producers may recover costs incurred in acquiring or developing screenplays, scripts, and other creative properties that are not scheduled for production.

“For many years, the industry accounted for these costs in the same way for both tax and financial reporting purposes,” stated Acting Assistant Secretary for Tax Policy Gregory Jenner. “After a change in the applicable financial reporting rules, the industry asked us to address the tax treatment of these costs as part of the Industry Issue Resolution (IIR) program.”

The revenue ruling issued today (Rev. Rul. 2004-58) holds that a film producer may not claim an abandonment loss for the capitalized costs of acquiring or developing creative properties unless the producer establishes an intention to abandon the property and an affirmative act of abandonment occurs. The revenue ruling also holds that a film producer may not claim a deduction for worthlessness unless identifiable events evidencing a closed and completed transaction establishing worthlessness occur.

The revenue procedure issued today (Rev. Proc. 2004-36) provides a safe harbor method of accounting that permits taxpayers to amortize over a fifteen-year period costs for creative properties that are not scheduled for production within three years of acquisition

Tax Analysts reports that Kevin Knopf, Benefits Tax Counsel for the Treasury Department, stated at the May 26 Silverstein & Mullens Tax Management Luncheon that the IRS may lack the resources to prevent people from using tax-free funds in health savings accounts (HSAs) for reasons other than to pay medical expenses. Unlike other tax-preferred health savings vehicles, trustees of HSAs are not required to police spending from the accounts.

This is the fourth installment of What Tax Profs Are Reading. The goal is to share with the broader tax community reviews of both tax-related and nontax-related books recently read by tax professors. We invite tax professors to submit book reviews for publication on TaxProf Blog.

Jim Maule (Villanova) shares with us his thoughts on Dragon's Kin (Del Rey, 2003) by Anne McCaffrey and her son Todd McCaffrey:

Collaborating for the first time with her son, the veteran weaver of the tales of the dragons, dragon riders, and folk of Pern has again produced a tough-to-put-down and fun escape. Escape it is, another in one of perhaps only two series of science fiction that for some reason grips me. The other, the Lensman series by e.e. "doc" Smith wirtten in the 60s (and which came to me courtesy of my older brother to the chagrin of my parents who thought science fiction was a distraction from stuff really worth reading), defies comparison for it was written in a different era when science was viewed more favorably than it sometimes is today.

McCaffrey's stories are set in the future but involve colonizers of a planet who reject most technology and return to a less complex way of life, only, of course, to be hit with unexpected challenges and solutions found in telepathic dragons whose abilities reflect the application of science much more advanced than today's. McCaffrey gives personalities to her characters that make them seem real, and she lets the usual human problems of greed, deceit, and stupidity conflict with the better qualities of diligence, duty, and love in ways that suggest some things don't change much. What I like about this series is that she writes them out of sequence. "Dragon's Kin" is set so that if the books had been released in chronological order it would have been among the first.

McCaffrey uses this technique so that things not understood in an earlier (but later in time) book are explained in the later volume. Surely not an original idea, but it works well. I met the dragons of Pern when I picked up a book from a friend's bookshelf while visiting at the seashore, and (this is tough even for me to comprehend so, yes, it seems strange) I had some free time on my hands. Suffice it to say I have an entire shelf in one of the built-in display bookcases in my living room filled with the Pern materials, which might break the "show the classics" rule but I'd rather let my display bookcases show myself.

So my 'to read" pile has shrunk by two books. It remains in the hundreds. I'm almost finished a third (I have this habit of reading more than one book at a time, a tough to abandon habit left over from taking multiple courses in a semester) and I'll write that one up when I'm finished. It's not tax, not a biography, not family history, and not science fiction. I'll leave it at that.

• Fundamental Freedoms and National Tax Sovereignty in EU
• Cross-Border Loss Relief and International Group Operations
• International Accounting Standards and Taxation
• The PhD in Taxation Academic Track in EU Member States

The TaxProf Blog expense kitty will not permit on-site blogging, so I will try to get one of the U.S. Tax Prof members of EATLP to guest blog the meeting.

The growth of the information economy -- the Internet, computers, media, and the like -- has generated massive amounts of debate in popular and policy circles. More than that, though, it has raised many interesting subjects for economic research. My work in the area has focused on two general topics: the impact of tax and other government policies in the information economy, and the nature of industrial competition on the Internet and in other information-based industries. In general, the findings have tended to suggest that the responsiveness to price, tax, and other types of shocks in these industries is surprisingly high.

The Tax Court in Durham v. Commissioner, T.C. Memo. 2004-125, has rejected a taxpayer's equal protection challenge to Congress's limitation of the expanded power to abate interest under Section 6404(e) to tax years beginning after the date of enactment (July 30, 1996). The court concluded:

One obvious rational basis for new section 6404(e)’s effective date is simple administrative convenience. In enacting new section 6404(e), Congress needed to define the situations that would and would not be subject to its provisions. Taking into account that income taxes are levied on an annual basis, it was rational for Congress to restrict the amendment’s application by tax year, limited to liabilities for tax years beginning after the date of enactment and so giving the IRS some time to adjust its own administrative routine at a lower cost to the Government. Considerations of administrative convenience have long been recognized as a valid reason for legislative line drawing. We need not, indeed we must not, engage in judicial second-guessing of such a legislative decision.

• Alan Auerback (UC-Berkeley): “This is an accessible and engrossing analysis of recent tax policy by an important participant in the process, full of useful facts and plenty of interesting anecdotes. The U.S. tax system's current state may be difficult to justify, but it will be easier to understand after one reads Steuerle's account of how and why things happened.”

• Evelyn Brody (Chicago-Kent): “The pre-eminent writer on public finance today brings us a succinct and thorough guide to the exigent yet contested social issue of tax policy. In his clear and compelling prose, Gene Steuerle masterfully reviews the history of endless ‘reform’ and offers prescriptions for the future. In unpacking the legislative and administrative process, he identifies the major players, their principles and ideologies, and the winners and losers. This practical volume is essential reading for policy makers as well as practitioners and students of economics, law, accounting, policy studies, and political science.”

• Daniel Halperin (Harvard): “I am a long-time fan of Gene Steuerle and his work, most importantly his ability to bring clarity and balance to a debate that is often dominated by partisanship and bias. Contemporary U.S. Tax Policy provides a compelling examination of how theoretical arguments have blended with powerful constituencies to shape and reshape tax policy over the past 50 years. Academics as well as tax lawyers should read this concise history.”

• Ronald Pearlman (Georgetown): “I think it fair to say that treasury I [the treasury proposal leading to the tax reform act of 1986] would not have moved forward had it not been for [Gene’s] early leadership.”

Newsweek's Robert Samuelson notes that the book "addresses the insistent question: Why is the federal tax system such a mess? The answer, in a word, is democracy."

For a copy of the 106-page complaint filed by New York Attorney General Eliot Spitzer seeking to recover over $100 million of past compensation paid to former NYSE Chairman Richard Grasso, see here. For Mr. Grasso's defense, see here. For some of the many press reports about the complaint, see here, here, here, here, and here. (Thanks to Ellen Aprill (Loyola-L.A.) for the tip).

As most Tax Profs know, there are a number of active and vibrant scholars in this country who mine tax history for lessons to inform current tax policy debates. In Japan, the government is looking to tax historians to help shape modern-day tax reform:

A Japanese government advisory panel has turned to ancient history for inspiration in its struggle with the thorny issue of how to reform the country's tax system. Members of the panel, which reports directly to the prime minister, recently heard from experts on population change in the Jomon period, from around 10,000 BC to 300 BC, and during the Tokugawa Shogunate, which ruled Japan from AD 1600 to 1868.

Congress itself has been guilty of using accounting devices remarkably similar to those used by Enron, WorldCom and others to "cook the books" and to mislead the public with regard to government finances....temptations for the government to engage in creative accounting may be even greater than those in the private sector.

Many budget commentators have complained about congressional gimmicks used to misstate or misrepresent the true state of the federal budget. To my knowledge, however, none of them has made an effort to compare the gimmicks used by Congress with those used by private-sector firms. One of the questions raised in this Article is the extent to which mere "gimmicks" in the hands of federal budget-makers might be considered accounting, tax, or securities fraud in the hands of the private sector. Further, if the gimmicks would be so considered, is the double standard justified? This question takes on added importance as Congress now seeks to hold the private sector to higher standards through recent corporate accountability legislation and as Congress considers proposals for budget reform.

Congress has enacted various tax breaks for members of the U.S. Armed Forces, including section 112 which excludes from income military pay for soldiers serving in combat zones like Iraq. The IRS has a very helpful web site and publication (Publication 3: Armed Forces' Tax Guide) explaining these tax benefits. Yet a recent GAO Report, Active Duty Military Compensation and Its Tax Treatment (GAO-04-721R), reports that the section 112 income exclusion has adverse tax consequences because of its interaction with other tax benefits, and that the adverse consequences get worse the longer a solder is stationed in a combat zone:

The complex interactions between the combat zone exclusion and certain tax credits (principally the Earned Income Tax Credit and the Additional Child Tax Credit) appear to be creating unintended consequences. Specifically, some low-income-earning service members who serve in a combat zone are worse off for tax purposes, while some higher-income-earning members are better off because they become eligible for a tax credit that is normally targeted to low-income workers.

Our analysis suggests that some of the roughly 430,000 members serving in a combat zone in 2003—between 5,000 and 10,000 members in one-earner households—suffered a net loss of tax benefits.... [T]he number of members losing tax benefits could be larger in 2004 depending on the how many service members are in a combat zone and how long they are there.

Jim Maule (Villanova) has updated his wonderful "unofficial" Tax Court web site. The site has a complete set of the court's rules which, unlike the "official" site, are hyperlinked (and thus permit the user to jump from rule to rule). The unofficial site also has detailed biographical information about the judges and other information. A tip of the TaxProf Blog hat to Professor Maule for providing this valuable service to the tax community.

Six red-state Republican Senators (Brownback (Kan.), Craig (Idaho), Chambliss (Ga.), Crapo (Idaho), Graham (S.C.) & Inhofe (Okla.)) have introduced the Tax Code Termination Act (S. 2463), which would repeal the Internal Revenue Code as of January 1, 2010. The bill does not say what will take the place of the Tax Code. Instead, the bill directs that Congress enact a new "simple and fair" tax law by July 4, 2009 that:

Twenty-five years ago, the best tax vehicle for a business enterprise was clearly growth stock, in which the corporation accumulated its earnings. The growth stock strategy was so advantageous that shareholders could tolerate managers taking rents out of the corporation in excess of the value they added. With the drop in individual rates, however, using a corporation subject to section 11 tax is getting very hard to justify. Corporate stock is clearly rational only as an estate-planning device for investments that will benefit from the step-up in basis at death. For very-long-term investments, Johnson explains, corporate stock might be justified if it causes sufficiently higher pretax return to the enterprise, if it convinces investors to accept sufficiently lower after-tax returns, or if corporations have sufficiently better access to tax shelters. As the term of the investment gets shorter, however, the tax barriers to use of corporate stock get higher. At investment terms of, say, five years, Johnson concludes that the barriers to use of the corporate form look insurmountable.

Following up on last month's post about George Yin's article on the effective tax rates of the companies in the S&P 500: The Rocky Mountain News has an interesting article about the amount of corporate taxes paid by Aldolph Coors Co. in recent years:

This article discusses the role of tax policy in improving the international competitiveness in improving the international competitiveness of U.S. industries. The existing U.S. tax law governing the activities of multinational companies has been developed in a patchwork fashion, with the result that current law can result in circumstances that harm the competitiveness of U.S. companies.... [T]he current U.S. international tax rules should be reviewed with an eye to reducing their complexity and removing impediments to U.S. international competitiveness.

The impossibility of reaching a definition of tax shelters that is neither under- nor overinclusive demonstrates the futility of attacking them head-on....Regardless of whether the ultimate solution proves to be a simplification or a more radical shift to a less easily manipulated tax base, some sort of substantive disallowance rule may provide a stopgap measure and a step toward a principled policy response. Because of the uncertainty such a rule would create for taxpayers who wish to rely on the published rules, however, it would be no substitute for substantially reforming the Code. What makes the concept of economic substance so immediately appealing is that it would seem to instill a notion of fairness into the "abomination" that the Code has become. However, a long-term improvement will be realized only if adopting a substantive disallowance rule signals the coming of an era in which Congress respects the Code and exercises more care for and control over its contents. Until taxpayers are convinced that the tax system is more than a lengthy compilation of special preferences, one should expect taxpayers to expend their superior resources (successfully) eluding Congress's carefully crafted rules.

Alice Abreu returns to Temple from her Spring 2004 stint as the William K. Jacobs, Jr. Visiting Professor of Law at Harvard Law School, where she taught the basic tax course as well as a tax policy seminar (Policy Issues in Tax System Redesign). She has visited at other top law schools in recent years, including Yale and Penn, and was the Howard H. Rollap Distinguished Visiting Scholar at Utah. She calls her Harvard stint "an amazing experience":

I found the faculty, students and staff to be both welcoming and intellectually exciting. The students are interesting, engaged, and not at all arrogant. It has also been an exciting time to be in Massachusetts; in addition to the Kerry candidacy, the impending reality of gay and lesbian marriage in Boston gave discussions about the ways in which the Code both privileges and penalizes marriage, and the effect of DOMA, especial currency. [Editor's note: What about the Red Sox?]

Professor Abreu has held important leadership positions within the academy and profession, and at Temple. She chaired the AALS Tax Section in 1997 and is the Supervising Editor of the ABA Tax SectionNews Quarterly. Professor Abreu was the catalyst for change in the Temple law school writing curriculum and chaired the Faculty Selection Committee from 1995-97. She held the Charles Klein Chair of Law and Government during the 1993-96 rotation and was the 1992 Law School nominee for the University Lindback Award for Excellence in Teaching. Professor Abreu is a frequent speaker at tax conferences and served as Chair of the 47th Annual Penn State Tax Conference in 1993.

From June 1-10, Professor Abreu will be in Rome, helping to direct Temple's summer program. She notes that "it's been a great year. I even indulged in flying to Rome during the HLS spring break and running, and finishing, the Rome marathon. For an over 50 law professor who burned her AARP card, that's not too bad!" Not bad indeed!

Each Saturday, TaxProf Blog shines the spotlight on one of the 700+ tax professors in America's law schools. We hope to help bring the many individual stories of scholarly achievements, teaching innovations, public service, and career moves within the tax professorate to the attention of the broader tax community. Please email me suggestions for future Tax Prof Profiles. For prior Tax Prof Profiles, see here.

In a press release, the Concord Coalition said that the pay-as-you-go (PAYGO) rule for tax cuts and entitlement expansions included in the budget resolution now before the House and Senate fails to provide meaningful fiscal discipline.

No tax content here, but Stanley Fish has a very thoughtful op-ed in today's New York Times on the proper role of higher education (including law schools). He advises those of us in the higher ed biz not to "confuse [our] academic obligations with the obligation to save the world.... In short, don't cross the boundary between academic work and partisan advocacy, whether the advocacy is yours or someone else's." He concludes that "[i]f we aim low and stick to the tasks we are paid to perform, we might actually get something done."

The IRS yesterday lost an important family limited partnership case in the Fifth Circuit: Estate of Kimbell v. U.S (No. 03-10529) (5th Cir. May 19, 2004). The case comes on the heels of the IRS's successful challenges to family limited partnerships in Tax Court cases like Estate of Strangi, T.C. Memo. 2003-145 (coincidentally decided precisely one year earlier and on appeal in the Fifth Circuit). Perhaps the most significant aspect of Estate of Kimbell is that it lays out a four-part roadmap for avoiding section 2036 in family limited partnership cases:

• Parent retains sufficient non-partnership assets for her support and avoids commingling of personal assets with partnership assets.

A Colorado Catholic Church Diocese raised quite a ruckus here and elsewhere this week with its anti-Kerry pastoral letter. We and others noted the strict tax rules keeping religion out of government/politics.

Yet a story out of Texas illustrates that danger lurks in the other direction as well, when government intrudes on religion. The state comtroller denied tax-exempt status to a local Unitarian church because it lacked "one system of belief." As the local paper notes: "What constitutes religion? When and how should government make that determination? Questions that for years have vexed the world's great philosophers have now become the province of the state comptroller's office."

Since 1999, Texas has denied tax-exempt status to 17 churches and granted them to more than 1,000. (Thanks to reader Stuart Levine for passing on the lead.)

Richard Lavoie (Northwestern) has published Subverting the Rule of Law: The Judiciary's Role in Fostering Unethical Behavior, 75 U. Col. L. Rev. 115 (2004). Here is part of the Introduction:

...Enron's unethical behavior was seemingly promoted by a legal system that the company perceived to be constrained to a literal interpretation of the law.

The remainder of this article explores these themes in more detail and illustrates them in the context of corporate tax shelter activity. Part II examines the nature of morality and demonstrates that unethical behavior is attributable to situational factors, rather than to intrinsic character. This portion of the article lays the philosophical and social science foundation required to understand why New Textualism's focus on strict statutory construction has such a significant adverse impact on ethical behavior. Part III examines New Textualism's reliance on promoting the Rule of Law as the justification for insisting on strict statutory interpretation. This part demonstrates that strict statutory interpretation in fact harms the Rule of Law because it severs the symbiotic relationship between a society's laws and its values and results in heightened unethical behavior. Conversely, it is shown that a more inclusive interpretive approach would satisfy New Textualism's Rule of Law requirements while still maintaining close links to societal beliefs and promoting ethical behavior. Part IV reviews these concepts in the context of corporate tax shelter activity and demonstrates how a move toward literal interpretations of the tax laws has led to increased levels of unethical behavior. This part also appraises the efficacy of various techniques that could be used to dissuade such unethical behavior in light of the philosophical and social science considerations discussed in Part II. Part V concludes that the attitudes of the judiciary and the bar regarding statutory interpretation have a significant impact on the level of unethical behavior. As a consequence of the recent ascendance of strict statutory construction, moral and legal norms have begun to diverge in a manner that fosters unethical behavior. Consequently, corporate America's ethical crisis should be addressed by narrowing the gap between moral and legal norms and by altering the situational considerations of corporate managers. This requires judicial rejection of strict statutory construction and utilization of professional advisors to promote ethical client behavior.